Chapter 10 Contract management Project Management Afnan Albahli

Chapter 10: Contract management Project Management Afnan Albahli 1

Acquiring software from external supplier This could be: • a bespoke system - created specially for the customer • off-the-shelf - bought ‘as is’ • customised off-the-shelf (COTS) - a core system is customised to meet needs of a particular customer SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 2

Types of contract • fixed price contracts • time and materials contracts • fixed price per delivered unit Note difference between goods and services Often licence to use software is bought rather than the software itself SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 3

Fixed price contracts Advantages to customer • known expenditure • supplier motivated to be cost-effective SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 4

Fixed price contracts Disadvantages • supplier will increase price to meet contingencies • difficult to modify requirements • cost of changes likely to be higher • threat to system quality SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 5

Time and materials Advantages to customer • easy to change requirements • lack of price pressure can assist product quality SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 6

Time and materials Disadvantages • Customer liability - the customer absorbs all the risk associated with poorly defined or changing requirements • Lack of incentive for supplier to be costeffective SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 7

Fixed price per unit delivered SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 8

Fixed price/unit example • Estimated system size 2, 600 FPs • Price – 2000 FPs x $967 plus – 500 FPs x $1, 019 plus – 100 FPs x $1, 058 – i. e. $2, 549, 300 • What would be charge for 3, 200 FPs? SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 9

Fixed price/unit Advantages for customer • customer understanding of how price is calculated • comparability between different pricing schedules • emerging functionality can be accounted for • supplier incentive to be cost-effective SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 10

Fixed price/unit Disadvantages • difficulties with software size measurement may need independent FP counter • changing (as opposed to new) requirements: how do you charge? SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 11

The tendering process • Open tendering – any supplier can bid in response to the invitation to tender – all tenders must be evaluated in the same way – government bodies may have to do this by local/international law (including EU and WTO, World Trade Organization, requirements SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 12

The tendering process • Restricted tendering process – bids only from those specifically invited – can reduce suppliers being considered at any stage • Negotiated procedure – negotiate with one supplier e. g. for extensions to software already supplied SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 13

Stages in contract placement requirements analysis evaluation plan invitation to tender evaluation of proposals SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 14

Requirements document: sections • introduction • description of existing system and current environment • future strategy or plans • system requirements – mandatory/desirable features • deadlines • additional information required from bidders SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 15

Requirements • These will include – functions in software, with necessary inputs and outputs – standards to be adhered to – other applications with which software is to be compatible – quality requirements e. g. response times SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 16

Evaluation plan • How are proposals to be evaluated? • Methods could include: – reading proposals – interviews – demonstrations – site visits – practical tests SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 17

Evaluation plan -contd. • Need to assess value for money (VFM) for each desirable feature • VFM approach an improvement on previous emphasis on accepting lowest bid • Example: – feeder file saves data input – 4 hours work a month saved at £ 20 an hour – system to be used for 4 years – if cost of feature £ 1000, would it be worth it? SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 18

Invitation to tender (ITT) • Note that bidder is making an offer in response to ITT • acceptance of offer creates a contract • Customer may need further information • Problem of different technical solutions to the same problem SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 19

Memoranda of agreement (Mo. A) Customer asks for technical proposals Technical proposals are examined and discussed Agreed technical solution in Mo. A Tenders are then requested from suppliers based in Mo. A • Tenders judged on price • Fee could be paid for technical proposals by customer • • SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 20

Contracts • A project manager cannot be expected to be a legal expert – needs advice • BUT must ensure contract reflect true requirements and expectations of supplier and client SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 21

Contract checklist • Definitions – what words mean precisely e. g. ‘supplier’, ‘user’, ‘application’ • Form of agreement. For example, is this a contract for a sale or a lease, or a license to use a software application? Can the license be transferred? • Goods and services to be supplied – this could include lengthy specifications • Timetable of activities • Payment arrangements – payments may be tied to completion of specific tasks SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 22

Contract checklist - continued • Ownership of software – Can client sell software to others? – Can supplier sell software to others? Could specify that customer has ‘exclusive use’ – Does supplier retain the copyright? – Where supplier retains source code, may be a problem if supplier goes out of business; to circumvent a copy of code could be deposited with an escrow service SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 23

Contract checklist - continued • Environment – for example, where equipment is to be installed, who is responsible for various aspects of site preparation e. g. electricity supply? • Customer commitments – for example providing access, supplying information • Standards to be met SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 24

Contract management Some terms of contract will relate to management of contract, for example, • Progress reporting • Decision points – could be linked to release of payments to the contractor • Variations to the contract, i. e. how are changes to requirements dealt with? • Acceptance criteria SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 25

How would you evaluate the following? usability of an existing package usability of an application yet to be built maintenance costs of hardware time taken to respond to requests for software support • training • • SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 26

Contract management • Contracts should include agreement about how customer/supplier relationship is to be managed e. g. – decision points - could be linked to payment – quality reviews – changes to requirements SPM (5 e) Managing contracts© The Mc. Graw-Hill Companies, 2009 27